This important stock trading information cautions you against selling your holdings too soon or focusing on short-term investing over long-term results

Top-quality stocks tend to lose less of their value in market setbacks. They also tend to bounce back nicely when conditions improve. These are the kinds of stocks we continue to recommend in our newsletters and other services.

To build a portfolio of those stocks—and to show the best long-term results, Pat McKeough still thinks you should stick with his three-part program:

1. Hold mostly high-quality, dividend-paying stocks.
2. Spread your money out across most if not all of the five main economic sectors: Manufacturing & Industry, Resources & Commodities, Consumer, Finance and Utilities.
3. Downplay or stay out of stocks in the broker/media limelight.

Meantime, successful investors generally recognize that you can’t predict market swings, but you can profit from long-term growth in the economy, and from the wealth creation that takes place in well-established companies. However, investors become more receptive to the idea of predictions in the late stages of a market downturn, when alternative strategies may appear to  have beaten a “buy and hold” approach.

The funny thing about all this is that “the traditional buy-and-hold strategy” is written about much more than it is practiced by most investors. Today we give you stock trading information that will help in the process of buying and selling, and in making better investment decisions overall.

How Successful Investors Get RICH Learn everything you need to know in 'The Canadian Guide on How to Invest in Stocks Successfully' for FREE from The Successful Investor. How to Invest In Stocks Guide: Find 10 factors that make your investments safer and stronger.  I consent to receiving information from The Successful Investor via email. I understand I can unsubscribe from these updates at any time.

Stock trading information: You face three costs every time you buy and sell

1. Losses to the bid/ask spread: If you want to carry out a transaction right away, you have to accept the highest available “bid,” or pay the lowest “offer.” You can enter your own bid or offer. But this means you have to wait for another investor who is willing to do business at your price. Meanwhile, prices could move against you.
2. Taxes: If you sell at a profit in your taxable account (outside your RRSP or tax-free savings account), you usually have to pay capital gains taxes.
3. Brokerage commissions: Every transaction you make in your portfolio involves brokerage commissions or similar costs, even if these costs are hidden or built into the price you pay or receive. (Note, though, that falling commissions for online trades is helping to reduce costs here.)

Stock trading information: Diversified investing focuses on building wealth over time

You will improve your chances of making money over long periods, no matter what happens in the market, if you diversify your holdings across most if not all of the five main economic sectors: Manufacturing & Industry; Resources & Commodities; Consumer; Finance; and Utilities.

Finding and holding long-term stocks is one of the main investment goals of our Successful Investor philosophy. While it’s certainly a strategy to buy and sell stocks for short-term gains, we feel that top-quality long-term stocks will gradually accumulate stock market profits over decades. And because you’re investing for a long period of time, short market fluctuations have very little effect on long-term gains. That makes for a less stressful investment strategy.

Stock trading information: Even the best short-term or quick-return investments won’t give you the same results as a good long-term investing strategy

When you start investing, you may think the secret to investment profit and finding the best stock picks is to “buy low, sell high.” But that’s hard to do. You’ll often buy just before prices fall or sell just before they further rise.

In fact, what looks like the best short-term investments won’t give you the same results as a good long-term investing strategy.

Long-term investment strategies aren’t built by making a fast dollar or profiting from inside information. They are built over time, and most importantly, by learning how not to repeat the market mistakes of the past.

These long-term investment strategies have long been part of the advice we give in our investment services and newsletters and they will enhance your long-term investment results.

Stock trading information: How to determine your turnover rate

You can measure your portfolio turnover to see how trading is affecting your results. Add up the value of all the investments you bought during the year and all the investments you sold. Next, add the beginning and year-end values of your investment portfolio. Divide the first number by the second.

For example, say you sold $24,000 of investments last year. You held on to $4,000 to pay capital-gains taxes, and bought $20,000 of investments. That’s a total of $44,000. Your portfolio is worth $55,000 at the beginning of the year and $62,000 at year’s end, for a total of $117,000.

Now divide $44,000 by $117,000. The result: 37.6%. That means you replaced an average of 37.6% of your portfolio from last year. That’s on the high side. Many successful investors have portfolio turnover of 25% or less a year—often much less.

It pays to seek out stocks that you believe you will be prepared to hold on to indefinitely. You’ll change your mind on some of them, of course. But you’ll hold others for decades, and these stocks will give you your biggest profits.

Higher investment quality equals lower risk

If you invest mainly in well-established, dividend-paying companies, you’ll find that any investment or market timing mistakes you make will rarely cause serious or permanent losses. When you spread your money out across most if not all of the five main economic sectors, you’ll cut your vulnerability to market risk all the more.

In contrast, your market timing skills are bound to be crude and unreliable. They will never protect you from the risks of investing in companies with flawed business plans.

Moreover, even the best market-timing skills are useless when it comes to protecting you from untrustworthy insiders. If we have reason to doubt the integrity of a company’s insiders, we stay out, no matter how tempting it seems. Those are the risks we focus on and attempt to avoid.

The odds are usually against you if you buy and sell frequently. What if any success have you had with short selling?